Mutual Fund News

MFS axes suspended executives

By SINCLAIR STEWART

Monday, March 8, 2004

Embattled Massachusetts Financial Services Co., faced with a possible revolt by some of its largest customers, has decided not to rehire a pair of top executives who were suspended last month by U.S. regulators, according to sources familiar with the matter.

The Boston-based fund unit of Sun Life Financial Inc. of Toronto, is also expected to appoint new compliance and legal officers today as it scrambles to tighten its internal controls and disentangle itself from the widening mutual fund trading scandal.

The sources said a number of major clients threatened to pull their money out of MFS if the company allowed John Ballen and Kevin Parke to return to work following their temporary bans from the industry.

Nick Thomas, a spokesman for Sun Life, confirmed the company intends to make some staffing announcements this week, but declined further comment.

Mr. Ballen, the company's former chief executive officer, agreed to a nine-month suspension and a $300,000 (U.S.) fine as part of a settlement with the U.S. Securities and Exchange Commission that MFS permitted improper trading in some of its funds. Mr. Parke, formerly president and chief investment officer, was suspended for six months and also paid a $300,000 fine. Neither is allowed to serve as an officer or director of a mutual fund company for three years.

Rob Manning, who took over the top job at MFS, said recently that both men might return to the company in a different capacity once their suspensions were served.

Those comments stunned pension funds and other clients, some of which privately indicated they would terminate their lucrative money management contracts with the firm.

That is something that MFS can ill afford. In late February, the Illinois Teachers' Retirement System fired MFS as lead manager for a $664-million large-capfund portfolio, in part because of the dust-up with the SEC and New York State Attorney-General Eliot Spitzer.

MFS struck a punishing $350-million settlement with the two regulators last month over allegations it allowed some customers to engage in market timing of its largest funds. As part of its deal with Mr. Spitzer, the company has promised to cut its commission fees by $125-million over the next five years.

Mr. Manning's remarks were also poorly received by Sun Life CEO Donald Stewart, who has been focusing almost all of his efforts in recent months to addressing the issues at MFS and retaining the confidence of clients and investors.

Shortly after the settlement, Mr. Stewart appointed Robert Pozen, a veteran of Fidelity Investments, as chairman of MFS, and made him responsible for improving the firm's compliance and reviving its storied reputation as the inventor of the modern-day mutual fund.

MFS will also announce the appointments today of two senior officials. Jeffrey Carp will be named general counsel and senior vice-president, and will be in charge of the firm's legal affairs. Maria Dwyer, formerly an executive at Fidelity, has been hired as chief regulatory officer, a newly minted post. Ms. Dwyer will head up compliance, and assume responsibility for the internal audit. Both she and Mr. Carp will also serve on the company's management committee.

In an internal memo obtained this weekend by the Boston Globe, Mr. Manning displayed a sudden change of heart, saying neither Mr. Ballen nor Mr. Parke would return to MFS.

The company is still being investigated by the SEC for participating in so-called "pay for play" or directed brokerage arrangements. Essentially, this means that in exchange for steering trades to a brokerage firm, the fund company received preferred treatment, often in the form of increased promotion of its products to consumers. MFS, which has since scrapped the practice, was one of about a dozen mutual fund companies on a preferred list at Morgan Stanley. Morgan Stanley agreed to pay $50-million last year to settle allegations it failed to notify customers about these sorts of agreements when it marketed specific funds.